Central Bank of the Republic of Colombia Cuts Interest Rate as Expected

February 22, 2013

A sixth 25-basis point interest rate reduction since July 2012 was announced by Colombia’s central bank in a unanimous 5-0 vote after “taking into account that the Colombian economy is growing below its potential, observed and projected inflation lie below the 3% target, and nowhere can be seen upward pressures on it in the near future.” Recent economic growth has been lower than anticipated, and monetary officials estimate that GDP went up only about 3.6% give or take 0.3 percentage points in 2012, down from 5.9% the year before. On inflation, a statement released by authorities had this to say: “Both the average basic inflation and inflation expectations are below the long-term goal (3%). The slowdown in inflation, greater than expected, had been against a background of a negative output gap, which can keep inflation expectations at low levels for a longer period of time. It also decreases the likelihood that increases not anticipated and generated by supply shocks would endanger the achievement of the goal of inflation.”

Today’s easing was the fourth straight move following ones in November, December and January. No indication was made on whether and when a seventh rate cut might occur. The statement concludes that future “monetary policy will depend on new information available,” in other words, be data driven. The total of 150 basis points of easing thus far reverses all but 75 basis points’ worth of a 225-bp post-Great Recession tightening between February 2011 and February 2012.

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